Commercial real estate’s hot streak to continue in metro Denver, brokers say

Metro Denver’s commercial real estate market has continued its rise through 2017 and is on track to continue its hot streak through the rest of the year and into the next.

That’s according to a panel of brokers convened at the Denver Metro Commercial Association of Realtors’ annual Colorado Commercial Real Estate Symposium.

“We’re participants in one of the best commercial real estate markets in the country. Pricing is at an all-time high and there’s a lot of momentum,” said Tim Richey, vice chairman of capital markets at CBRE Group Inc.

Investment pricing in Denver took a “quantum leap” after the recession, Richey said. Before the recession, the high-water mark for office investment deals in downtown Denver was around $450 per square foot. After the recession, properties started bringing in $600 per square foot, and now, $700 per square foot is within range.

Leasing activity has also brought price increases across the board in Denver commercial real estate.

In the multi-family housing sector, attaining a $2 per-square-foot rental rate was a tipping point, said Chris Cowan, executive managing director at ARA, A Newmark Company.

“$2 per foot rent was always elusive, and once it was accomplished, it opened doors. That justified capital and new developers coming to the urban core to execute on higher density and cost per-square-foot,” Cowan said.

But even with large populations of young people moving to Denver, it’s still a “fist fight” for companies to find the employees they need with the 2.4 percent unemployment rate, said Todd Roebken, executive managing director of Savills Studley.

But in spite of the hiring challenge, companies in Denver today are looking for higher-quality office space with more amenities, Roebken said, which translates into higher average lease rates and incentivizes owners of older buildings to renovate their space in order to compete with new product.

And while national retailers are struggling, residents of apartment complexes and employees from nearby offices are providing a steady stream of customers for restaurants of all kinds, which are seeking retail real estate near those populations in Denver, said Sam Zaitz, partner at Legend Partners.

As downtown Denver becomes a hub for office use as well as residences, retailers are shifting their focus to urban areas because there are potential customers in the area 24 hours a days, Zaitz said.

Both upscale, chef-driven restaurants and quick-service restaurants, as well as grocery stores, fitness centers and other service-based businesses are looking for retail space in Denver now, he said.

And while some retailers are concerned about the rise of e-commerce, the industrial sector in Denver is benefitting from it in the form of pre-leased new construction and increased lease rates along long-time industrial corridors like east Interstate 70 and newer hubs like northern Interstate 25, said Mitch Zatz, managing director and industrial lead at Jones Lang Lasalle.

The industrial sector wasn’t hit as hard as other parts of the commercial real estate market in the recession, Zatz said, but lease rates are still up 50 percent from 2007, driven in part by Denver’s increasing population and by the metro area’s growing prominence as a distribution hub.

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